Assessment of Strategic Management Practices in Small Agribusiness Firms in Tanzania
Dissertation
to obtain the Ph. D. degree
in the International Ph. D. Program for Agricultural Sciences in Goettingen (IPAG) at the Faculty of Agricultural Sciences,
Georg-August-University Göttingen, Germany
presented by
Theresia Dominic
born in Dar es Salaam (Tanzania)
Göttingen, May 2015
D7
1. Referee: Prof. Dr. Ludwig Theuvsen 2. Referee: Prof. Dr. Achim Spiller
Date of dissertation: 21st May 2015
i A number of people have assisted me in one way or another to complete my work successfully. To begin with, it gives me a great pleasure to acknowledge the support and help of my supervisor Prof. Dr. Ludwig Theuvsen, the Chair of Management in Agribusiness. He supported my research interest and allowed me work independently.
His challenging comments have helped me to refine my work and grow intellectually as a researcher. Also, I would like to thank Prof. Dr. Achim Spiller and Prof. Dr. Oliver Musshoff for serving as my PhD committee members and keeping an open door for any queries.
My time at the University of Göttingen has been highly productive, working as a member of the GlobalFood research training group; a program under the Faculties of Agricultural Sciences and Economic Sciences. The program gave me opportunities to build a solid academic foundation and interact with fellow research associates from different countries, as well as research experts from different universities. In this case, I must thank the leadership and coordination team; Prof. Dr. Matin Qaim, J-Prof. Dr.
Meike Wollni, Dr. Melanie Grosse and Diana Sieber. I would also like to thank members of the Chair of Management in Agribusiness for their support; Ms. Martina Reichmann, Dr. Anna Müller and Dr. Verena Otter; and the former members of the Chair, Dr. Maike Kayser and Dr. Matthias Heyder.
My studies would not have been possible without the joint financial support of the Ministry of Education and Vocational Training in Tanzania (MoEVT), the German Academic Exchange Service ‘Der Deutsche Akademische Austausch Dienst’ (DAAD), the German Research Foundation (DFG) and the Chair of Management in Agribusiness in the University of Göttingen. I appreciate the resources I received to be able to meet the living costs, travelling, field work and my participation in an international conference.
I would like to express my sincere gratitude to the agribusiness managers in Arusha, Dodoma and Tanga regions in Tanzania, who agreed to participate in the research survey. I would like to acknowledge the field work assistance I received from different people and their institutions in Tanzania. Special thanks to Mr. Mussa Mvungi (HomeVeg Tanzania Limited), Mr. Ray Ufunguo (Centre for Sustainable Development Initiative) and Ms. Gladness Foya (Small Industries and Development Organization).
ii Lillian Mtani, Ms. Nuria Gulamali, Ms. Elizabeth Rwegasira, Mr. Halidini Sarakikya, Mr. Omari Kilo and Mr. Nicholaus Mhusa. Their hard work made the data collection process less challenging. I am grateful for the support I received from my employer, the University of Dar es Salaam (UDSM) in Tanzania. Special appreciation to Prof.
Marcellina Chijoriga the former dean, Dr Ulingeta Mbamba, the current dean, and Dr Severine Kessy, the head of general management department; all from the UDSM Business School.
I would also like to thank my friends who have made the duration of my studies less stressful. Sigrid and Rudiger Pessel who invited me to their home, showed me a perfect example of the German culture, and made several arrangements to spend special social events, holidays and birthdays together. I truly appreciate everything they have done for me ‘Danke sehr’. My current and former office mates in the GlobalFood program: Nico Herforth, De Zhou, Hanna Ihli, Hanna Freudenreich, Birgit Gassler, Christoph Steffen and Christine Kiria; for making the working atmosphere so friendly and enjoyable. Also, the dance club members in Goettingen, the Tanzanian students in Germany, and many more.
Most importantly, I am forever grateful for the unconditional love and support from my parents; Mr and Mrs Dominic Beda Massawe. There is no way I can thank them enough. I am also grateful to my sister Lydia Dominic Massawe ‘Manka’ who decided to reschedule her life plans to take care of my babies, so that I could pursue my studies successfully. Thank you sister!
Lastly, but not the least I would like to thank and honor my daughters; Tamica and Taraji, they have behaved very well during my absences. Their patience, politeness, home videos, phone conversations and funny letters encouraged me to keep going. I’m truly proud!
Theresia Dominic, Gottingen, March, 2015
iii
Acknowledgements ... i
List of Appendices ... vii
List of Figures ... vii
List of Abbreviations ... viii
Summary ... x
Chapter One……….. ... 1
1 General Introduction ... 1
1.1 Background Information ... 1
1.1.1 Role of Strategic Management and its Role on Attainment of Firm Objectives ... 1
1.1.2 Strategic Management in Small Agribusiness Firms in Developing Countries ... 2
1.2 Research Objective ... 5
1.3 The Sample ... 6
1.3.1 Descriptive Statistics of the Sample ... 6
1.3.2 Status of Strategic Management (STM) Practices... 6
1.4 Outline of the Dissertation ... 8
References ... 10
Chapter Two ... 15
2 The Impact of External and Internal Factors on Strategic Management Practices of Agribusiness Firms in Tanzania ... 15
2.1 Introduction ... 16
2.2 Theoretical Framework and Hypotheses ... 17
2.2.1 Firm Characteristics ... 19
2.2.2 Firm’s Resources and Capabilities ... 20
2.2.3 Pressure from the External Environmental ... 22
2.2.4 Strategic Management Practices ... 23
2.2.5 Performance ... 24
2.3 Methodology ... 25
2.3.1 Data collection and sample description ... 25
2.3.2 Model Estimation ... 26
2.3.3 Quality Assessment of the Model ... 27
2.4 Results ... 29
2.4.1 Importance–Performance Matrix Analysis (IPMA) for STM Practices ... 31
2.5 Discussion and Conclusions ... 33
iv
Chapter Three ... 47
3 Agribusiness Firm Resources and Performance: The Mediation Role of Strategic Management Practices ... 47
3.1 Introduction ... 48
3.2 Literature Review ... 51
3.2.1 Role of Strategic Management Practices (STM) ... 51
3.3 Methodology ... 56
3.3.1 Data Collection and Sample Description ... 56
3.3.2 Measurement of Variables... 57
3.3.3 Model Estimation ... 58
3.4 Results ... 60
3.4.1 PLS Structural Equation Model Analysis ... 60
3.4.2 Mediator Analysis ... 61
3.4.3 Multigroup Analysis ... 63
3.5 Discussion and Conclusions ... 67
References ... 71
Chapter Four ... 81
4 HomeVeg Tanzania Managing a New Strategy amidst GLIMPSE Challenges (Case Study) ... 81
4.1 Introduction ... 82
4.2 Company Background ... 82
4.2.1 Current Management Structure ... 83
4.2.2 Key Success Factors ... 84
4.3 Strategic Issues for HomeVeg ... 84
4.4 Looking Ahead ... 86
References ... 88
Chapter Five ... 89
5 Summary, Conclusions and Implications ... 89
5.1 Summary and Conclusions ... 89
5.1.1 Paper 1 (Chapter Two) ... 89
5.1.2 Paper 2 (Chapter Three) ... 91
5.1.3 Case study (Chapter Four) ... 92
5.2 Implications ... 93
v References ... 96
Survey Instrument ... 98 Curriculum Vitae ... 118
vi
Table 1-1: Descriptive Statistics ... 7
Table 2-1: Descriptive Information about the Sample (N=229) ... 26
Table 2-2: Quality Criteria for Firm Characteristics Constructs ... 28
Table 2-3: Quality Criteria for Reflective First Order Constructs ... 28
Table 2-4: Quality Criteria for the Reflective First Order Constructs ... 28
Table 2-5: Fornell-Larcker Criteria ... 29
Table 2-6: P-values and Hypothesis Testing ... 30
Table 2-7: IPMA Results ... 32
Table 3-1: Descriptive Information about the Sample (N=229) ... 57
Table 3-2: PLS Model Quality Criteria ... 59
Table 3-3: Fornell-Larcker Criteria ... 59
Table 3-4: Path Coefficients and Significance Testing ... 60
Table 3-5: Strength of Mediation ... 63
Table 3-6: FIMIX-PLS evaluation criteria and relative segment sizes ... 64
Table 3-7: Path Coefficients for each segment ... 64
Table 3-8: Summary of Path Relationships for each Segment ... 65
vii
Appendix 1-1: Descriptive and Correlation Statistics ... 12
Appendix 1-2: Study Area ... 14
Appendix 2-1: Descriptive Statistics of Variable Items ... 44
Appendix 2-2: Collinearity Assessment ... 46
Appendix 2-3: Effect Sizes (f2 and q2 values) ... 46
Appendix 3-1: Descriptive Statistics of Variable Items ... 77
Appendix 3-2: Cross Loading ... 78
Appendix 3-3: Collinearity Assessment ... 78
Appendix 3-4: Effect Sizes (f2 and q2 Values) ... 78
Appendix 3-5: Validity and Reliability Measures (Multigroup analysis) ... 79
Appendix 3-6: PLS Model Multigroup Analysis ... 79
Appendix 3-7: Three-Segments PLS Analysis (Differences between Path Relationships) ... 80
Appendix 3-8: Characteristics of the Three Segments ... 80
List of Figures
Figure 1-1: Wheelen and Hunger's Strategic Management Model ... 1Figure 2-1: Conceptual Framework ... 25
Figure 2-2: IPMA Representation of Determinants of STM Practices ... 33
Figure 3-1: Conceptual Model ... 55
Figure 3-2: Results of the PLS Model ... 61
viii
AGE Firm age variable
AVE Average Variance Extracted BRC British Retail Consortium
CR Composite Reliability
CSDI Center for Sustainable Development Initiative EXP Level of managerial skills and expertise - variable FIMIX-PLS Finite Mixture Partial Least Squares Approach FORM Formalization status of a business firm -variable FUNDS Access to external funds - variable
GLIMPSE Government, Losses and wastage, Infrastructure, Markets, Politics and policies, Science and innovation; and Environment.
GLOBALG.A.P Independent certification system for Good Agricultural Practice
HCM Hierarchical Component Model
HODECT The Horticultural Development Council of Tanzania IFAMR
The International Food and Agribusiness Management Review
INFO Access to market information – variable INFRA Access to public infrastructure - variable INPUT Extent of input availability
INVEST Level of firm investment - variable
IPMA The Importance–Performance Matrix Analysis MAP Monitoring Agri-trade Policy
MoFEA Ministry of Finance and Economic Affairs NBS National Bureau of Statistics
NSGRP National Strategy for Growth and Reduction of Poverty PERF Firm performance variable
PLS Partial Least Squares
PLS-SEM Partial Least SquaresStructural Equation Modeling
RBT Resource Based View
RBV Resource Based Theory
SEM Structural Equation Modeling
ix SIDO Small Industries Development Organizations
SIZE Firm size - variable
SMEs Small and Medium sized Enterprises
STM Strategic Management
TZ Tanzania
TZS Tanzanian Shillings (currency) URT United Republic of Tanzania USD United States Dollars (currency)
VAF Variance Accounted For
VIF Variance Inflation Factor
x Strategic management (STM) is recognized as an important element for firms’
success; however, small firms, especially in agribusiness, have widely been overlooked because it is often thought that a systematic STM is exclusively for large corporate firms.
Firms engage in STM practices such as environmental analysis, formulation of mission and vision statements, strategic planning, implementation, evaluation, etc., regardless of their size. The firms need to work out strategic plans to exploit the existing market, but past research shows that they differ in their capacity to implement and manage strategies.
Whether or not they implement, the ability depends on the features of the firm itself, its resources and the conditions in the external environment. However, the need of STM practices for small firms is not well understood and the determinants for its successful application in small firms are not evidently known. With regard to African agribusiness firms, there is scant research on how the environmental factors determine the application of STM practices. Hence, using empirical data from 229 firms in Tanzania, the study conducts partial least squares structural equation modelling (PLS-SEM) analyses to estimate a model of the determinants of STM application that leads to firm performance, a mediating effect of STM application and a multigroup analysis by application of finite mixture PLS technique (FIMIX-PLS). Lastly, a case study is given to demonstrate challenges facing agribusiness firms in Tanzania.
In the first part of the analysis (Chapter two), the study explores to what extent the application of STM practices is affected by internal and external factors of the firms.
Ideas from resource-based theory (RBT) and industrial organization (I/O) are used to build a conceptual model and formulation of hypotheses. Results show significantly that better strategic actions reside in the capabilities of firm managers, whereas many external factors, such as access to public infrastructure, did not turn out to have a significant influence. Application of STM was more prevalent in firms with extra access to funds.
Hence the study calls on policymakers to accelerate, promote and advocate for more supportive services such as accessible financial services as well as managerial training programmes. Impacts of other factors are explained in detail. The findings have interesting implications for the management of agribusiness firms in African countries and other developing and emerging economies.
xi performed to demonstrate the role of strategic management in facilitating effective use of resources to achieve performance. Using ‘level of managerial expertise’ and ‘access to market information’ as primary resources, this research presents various arguments about their contribution to firm performance. Results indicate that the investigated resources alone do not directly contribute to firm performance unless there is an application of strategic management. Further investigation based on multigroup analysis shows three groups of firms which differ in their resources-performance relationship. The results imply that the small firms’ paths to achieve performance are different hence managers ought to identify a fit between their resources and strategic actions in order to improve the firm performance. The study provides manifold managerial implications for small firms that seek to improve firm performance. It is useful for small firm managers to apply modern management techniques of firm operations in order to make timely strategic decisions depending on the available resources.
Lastly, the case study explains challenges that can affect achievement of firms’
strategies for agribusiness firms in Tanzania (Chapter four). Some of these challenges include: stringent business regulations, poor availability of storage facilities, poor infrastructure, inability to penetrate international markets, poor progress in the implementation of policy recommendations and poor collaboration between scientist, researchers and actors in food supply chains. Considering the challenges, the firms should focus on improving their business skills, engage in public-private partnership programs and communicate policy shortfalls to the government.
Overall, this study provides an early inquiry into small firms’ STM application.
More progress surrounding the application can be further explained with the help of in- depth case studies and analyses of longitudinal data.
1
1 General Introduction
1.1 Background Information
1.1.1 Role of Strategic Management and its Role on Attainment of Firm Objectives
Strategic management (STM) has become an essential managerial tool for business firms in today’s competitive environments (Grant, 2013). It involves a set of decisions and actions that determine the long run performance of a firm. Its practices include environmental analysis, strategy planning, implementation, evaluation and control (Wheelen & Hunger, 2012) (Figure 1-1). The strategic management process helps managers to focus on opportunities for growth, react to competitors’ actions and better utilize firm resources. STM also provides firms and employees with a clear direction for future developments to achieve performance goals. Moreover, it reduces risks of unforeseen problems around firms’ environment.
Figure 1-1: Wheelen and Hunger's Strategic Management Model
(Wheelen & Hunger, 2006)
2 The value and importance of STM practices has been recognized and comparatively appreciated. Since its evolution strategic management has been directed towards facilitating organizational responses to the environment (Andrews, 1971; BCG, 1968). Firm managers are encouraged to develop a certain way of thinking that enables them to understand opportunities from environmental situations, and eventually make decisions that lead to performance (Steiner & Miner, 1977). In later and current years, many researchers have looked at the link between STM practices and firm performance (Andrews et al., 2006; Beaver 2002; Bracker & Pearson 1986; Chen, 2005; Dibrell et al.
2014; Georgellis et al., 2000; Stacey, 2011) while indicating a positive link and suggesting several contributing factors.
1.1.2 Strategic Management in Small Agribusiness Firms in Developing Countries
Many research studies have focused on the performance of small agribusiness firms in developing economies. This is mainly due to the firms’ important impact on net employment, welfare development and poverty reduction (Doern, 2009; Kinda &
Loening, 2010). However, current practices on how small firms’ managers operate are insufficient to improve overall firm performance. Using an example of food processors1 in Tanzania, the firms’ contribution to the economy of the country is relevant because the food processing industry in the country consists of a large number of small and micro firms2 operating in both a formal and an informal manner. Several reports indicate that there are weak competitiveness and poor managerial skills (Fafchamps & Quinn, 2012;
IFAMR, 2014). Likewise, the firms are faced with several constraints such as poor access to funds, poor public service infrastructure, limited capital availability, poor access to market information, etc. which have imposed challenges for firm managers to achieve their strategies (Dietz et al. 2000; Dinh et al. 2013).
The level of competitiveness of small agribusiness companies in the market is still poor and not improving, despite the fact that the markets for processed food products have been expanding and the demand for food is expected to double within the next 30
1 Actors (agribusiness traders) in food supply chains dealing with purchase of raw produce from farmers, food manufacturing, packing, labelling and marketing.
2 Capital less than 12000 US-Dollars
3 years (Dietz et al., 2000; Dinh et al., 2013). Furthermore, there are large trade deficits in the agro processing sector and a poor improvement of agro products’ quality (Dinh et al., 2013; World Bank, 2012). Several efforts have been made by the governments and private institutions to improve the capacity of managers by providing supporting services such as financial capital, credit guarantees, micro insurance, training, etc. (Dietz et al., 2000; MoFEA, 2010). However, the route of how the managers drive their firm organizations to survive in the markets is not well understood (URT 2007). With this regard, there is a need to investigate in more detail agribusiness management and how the resources are controlled and utilized for the future development of small agribusiness firms (Conforte, 2011). There is a need to take a closer look inside firm operations in order to assess the capability of the firms to plan, implement, evaluate and control their strategies. Specifically, it is essential to examine the factors that enable a firm’s capacity to do so.
Strategic management practices are often assumed to be exclusively utilized by large corporate firms and considered irrelevant for small business firms. However, previous studies indicate its importance to small firms as well (W. Anderson, 2012;
Biggs & Shah, 2006; Doern, 2009; Edelman, Brush, & Manolova, 2005; Edelman &
Brush, 2001; Kinda & Loening, 2010). The studies highlighted the huge importance of
‘strategy’ to enhance small business growth. The applicability of strategic management to small firms was found to be scanty and small firm managers refuse to embrace the strategic management process due to the following reasons:
(1) It is a time consuming process compared to the day to day firm operations activities;
(2) The managers are not well enough educated to know the terms used in STM tools such as business plans, balance sheets, cash flow, profit and loss statements, etc.
(3) There is a negative perception in paying for extra interventions such as business consultants or training programs (considering the limited resources and capital availability of small firms) (Beaver, 2007).
As a result, the firms fail to perform due to their inability to manage, for instance, growth and accounting procedures. Furthermore, many companies are characterized by a poor strategy to reach the customer due to a lack of transparency of the exchange of
4 business information between managers and employees, a wide-spread failure to develop control systems, and many more. Contemporary research has indicated repeatedly that strategic thinking and planning are strongly related to small firm business performance (Beaver, 2002, 2007).
In Tanzania, there are large numbers of small processing enterprises that are either registered or not registered and mostly invisible to statisticians. The food production premises are ever-changing. For example small firm workers may sort, pack, label and sell fruits, vegetables, rice, maize and other cereals in the owners’ backyards, in a temporary (half-built) production facility or in a permanent production facility (Dietz et al., 2000). The situation has not changed much over the years and is quite similar to other developing economies in Sub-Saharan Africa (Byerlee et al., 2013; World Bank, 2012).
The firms sell their products primarily to domestic markets while trying to meet customers’ demands and at the same time attempting to penetrate global markets. Despite their efforts, these firms encounter challenges in implementing strategies due to limited capital compared to larger companies. These challenges are related to their limited firm size and experience. Other challenges are due to limited availability of resources such as low investment level, limited access to market information and low level of managers’
expertise. Moreover, pressures from the external environment such as input availability, access to funds, and access to public service infrastructure are factors that can push or hinder firms’ ability to strategize. Considering the industrial organization and resource- based views in the strategic management literature (Grant, 2013), these factors are critical links to implementation of firm strategies and attainment of firm performance.
For the purpose of identifying research gaps, several studies show contradicting arguments for each of the factor’s contribution to the effective implementation of firm strategies. But, there is no clear explanation on why some firms of the same nature perform better than others in achieving their strategies while operating in a similar environment. The truth is that we know very little so far about management practices of agribusiness firms (Conforte, 2011) and how they differ in their capacity to implement and manage strategies. All in all, our current understanding of the small firms’ attainment of strategies is limited, especially with regard to small agribusiness firms in developing economies.
5
1.2 Research Objective
The first research objective is to explore strategic management practices of agribusiness firms (using a sample of food manufacturers and processors) in order to understand to what extent their application is affected by internal and external factors of the firm environments. The study (see Chapter two) employs ideas from the resource- based theory (RBT) and industrial organization to create a conceptual framework3 and bring out critical factors that enhance a fit between a firm’s internal and external situation, its STM practices and firm performance. Since existing literature shows contradicting arguments about the determinants of the successful application of STM practices, several hypotheses are formulated and tested. The findings will provide practical knowledge for agribusiness firms in managing their daily operations, especially now that with constant emergence of new markets there is much more exposure to competition. The firm managers will be informed on better STM tools applicable in their environment, as many of them have limited experience in running an enterprise.
Furthermore, the country of research is now focusing on the transformation of small and medium-sized enterprises (SMEs) from traditional into modern professional commercial firms (URT, 2010).
The second research objective is to perform further analysis to demonstrate the role of strategic management in facilitating an effective use of resources to achieve performance (see Chapter three). This is because previous studies have shown the critical link between resources and success but other studies indicate that resources alone cannot contribute towards firms’ success; instead they highlight the connection between the availability of resources and firm strategy and its management. Technically, we will apply mediation analysis to investigate the relationship between firm resources, strategic management practices and firm performance. The analysis will further reveal differences among firms regarding the deployment of firm resources such as managerial skills and market information. Due to the fact that the small firms and their paths to achieve sustainable growth are different, the findings will suggest alternative paths to sustainable success. Therefore, managers are encouraged to carefully utilize the strengths of their resources and develop related strategies to gain high returns. Since the food processing sub-sector is a large component of the manufacturing industry, especially in the
3 See Figure 2-1 Chapter two.
6 developing economies, any improvement will have an important impact on the competitiveness of the agribusiness sector as a whole.
The third research objective is to identify challenges facing agribusiness firms in Africa in achieving their strategies. An empirical example is given by demonstrating a short case study from Tanzania (Chapter four).
1.3 The Sample
1.3.1 Descriptive Statistics of the Sample
The sample consists of 229 firms dealing with food processing of cereals (65.9%), vegetables (16.4%) and fruits (11.5%), located in Arusha, Dodoma and Tanga regions in Tanzania4. It was collected between May and August, 2013 through a cross sectional survey. Data was collected through interviews with firm owners and managers with an aid of a structured questionnaire. The selection of food processors followed a random sampling technique. In general, the firms have a mean capital investment of 26.94 million TZS (≈ 16,600 US$5) and an average of 71/2 years of business operations. The respondents of this study were both owners and managers of the firm or a manager in charge. They were knowledgeable about general overview of the firms and cornerstones of their strategies. The respondents’ ages ranged from 18 to 78 years (average: 43 years), with an average of 11.05 years of school education.
Table 1-1 indicates further details of the characteristics of the interviewer (i.e. the firm owner-manager) and the firm. The data presents a brief summary of our raw data. It does not however indicate whether these differences have statistical significance.
1.3.2 Status of Strategic Management (STM) Practices
The application of strategic management (STM) practices is indicated as a key variable in all structural model analyses performed in Chapters two and three. The variable includes a total of 17 statements that are condensed to four categories of STM practices; (1) environmental analysis, (2) strategy planning, (3) strategy implementation
4 See Appendix 1-2: Study Area
5 1USD=1,623TZS exchange rate prevailing on 1st August 2013 www.bot-tz.org
7 and (4) strategy evaluation and control. The managers were asked to rate the application of these STM practices on five point Likert scales of 1 to 5.
Table 1-1: Descriptive Statistics
Application of STM practices x̅ (s) Total STM score
x̅ (s) Variables
% of full sample
Environ mental analysis
Strategy planning
Strategy implementat
ion.
Strategy control &
evaluation
Overall 100% 3.47
(1.19)
3.28 (1.14)
3.21 (1.09)
3.31 (1.22)
3.32 (1.09) Firm location
Region 1 (Arusha) 27.1% 3.28 (1.02)
3.19 (0.98)
3.19 (0.96)
3.28 (1.07)
3.21 (0.95) Region 2 (Dodoma) 45.9% 3.91
(1.03)
3.65 (0.98)
3.60 (0.94)
0.82 (17.23)
3.72 (0.91) Region 3 (Tanga) 27.1% 2.92
(1.35)
2.76 (1.29)
2.57 (1.17)
2.65 (1.33)
2.75 (1.22) Education level (3 groups)
Years of education ; Low (below 11 years)
34.5% 3.03 (1.24)
2.86 (1.12)
2.76 (1.09)
0.35 (16.16)
2.88 (1.09) Middle (between 11
and 12 years)
34.1% 3.79 (1.02)
3.53 (1.02)
3.51 (0.99)
3.60 (1.14)
3.61 (0.95) High (above 12 years
of education )
31.4% 3.61 (1.19)
3.48 (1.14)
3.39 (1.05)
2.01 (12.13)
3.49 (1.09) Age of owner manager
Young managers _38
years and below 36.8%
3.50 (1.03)
3.31 (0.94)
3.28 (0.89)
2.03 (11.34)
3.36 (0.89) Middle aged managers
_ 39 to 47 years 30.9%
3.39 (1.33)
3.14 (1.27)
3.15 (1.20)
0.33 (17.34)
3.23 (1.22) Older managers_ 48
years and above 32.3%
3.50 (1.25)
3.37 (1.18)
3.20 (1.21)
3.39 (1.26)
3.36 (1.17) Age of firm (years)
Young firms_ ≤ 4
years 36.8%
2.86 (1.27)
2.70 (1.16)
2.51 (1.04)
1.22 (11.95)
2.69 (1.10 Middle aged firms _ 4
< X ≤ 8 years 30.9%
3.58 (1.08)
3.39 (1.05)
3.34 (0.97)
3.38 (1.08)
3.44 (0.98) Old firms_ > 8 years 32.3% 3.95
(0.99)
3.74 (0.96)
3.78 (0.90)
1.05 (17.31)
3.82 (0.89)
Core product category
Cereals 65.9% 3.56 3.32 3.24 3.37 3.37
(1.09) (1.07) (1.02) (1.15) (1.00)
Fruits 16.4% 3.19 3.13 3.07 3.15 3.13
(1.43) (1.29) (1.26) (1.43) (1.29)
Vegetables 11.5% 2.96 2.94 2.89 2.86 2.93
(1.33) (1.38) (1.31) (1.38) (1.32)
Notes:
Mean values are shown with standard deviations in parentheses. Score values of the application of STM practices (4 categories), the mean values range between 1 and 5, where 5 is the highest score.
x̅ (s) - Mean (standard deviation).
8 Table 1-1 indicates that the average score on the application of STM is 3.32 (s
=1.09), whereby 1 is the lowest and 5 the highest score; however, the scores vary according to the characteristics of the firms as well as of the manager. For example;
summary on firm location shows that firms located in Tanga region scored less in the application of STM practices compared to firms located in other regions i.e. Arusha and Dodoma. Summary of other scores are shown with respect to education level, age of the firm, product variety, etc.
Furthermore, we ran a correlation analysis to get a preliminary idea on direction of the relationships between STM practices and factors from the internal and external environments of the firm. The analyses indicate a series of weak and strong relationships between the variables. Therefore, before analyzing our structural equation model (in Chapters two and three), we see that positive correlation exists between STM practices and factors such as; managerial expertise, firm size, formalization status and increase in sales. However, negative association exists with ‘self-financed’ status of the firm (r= - 0.31), meaning that the firms which generate their growth capital from firm’s income instead of acquiring additional funds from external sources have less ability to apply STM practices. That is why there is a negative correlation with practices such as environmental analysis (r= -0.3), strategy planning (r= -0.303), strategy implementation (r= -0.266) and strategy control (r= -0.310). More summary of our data is given in Appendix 1-1.
1.4 Outline of the Dissertation
The dissertation is structured as follows: Chapter two presents a paper titled ‘The Impact of External and Internal Factors on Strategic Management Practices of Agribusiness Firms in Tanzania’. The main research questions are: What is the influence of internal and external factors on the successful implementation of a firm’s strategic management practices? What is the implication of these influences to managerial decisions? In this paper, a conceptual model is developed for the study to test a number of hypothesized relationships by using primary data from the 229 firms in our sample.
We apply partial least square – structural equation modeling (PLS-SEM) through smartPLS 2.0 M3 software (Ringle et al., 2005). Thereafter, an illustration from the importance performance matrix analysis (IPMA) is included in the analysis section to
9 demonstrate a ‘priority map’ for managerial decisions. The paper was published in the GlobalFood Discussion Paper Series and is currently under review in an international peer-reviewed journal.
Chapter three presents a paper titled ‘Agribusiness Firm Resources and Performance: The Mediating Role of Strategic Management Practices’. The paper aims to answer additional research questions: Do strategic management practices mediate the relationship between firm resources and firm performance? Are there significant differences among firms in the role of strategic management practices as a mediating variable? As stated in the previous chapter, we apply partial least square – structural equation modeling (PLS-SEM) to estimate a resource-strategy-performance6 model for mediation analysis. Thereafter, multigroup analysis is conducted to uncover heterogeneity within the sample by using STM as a mediator variable in the model. We apply FIMIX-PLS technique in conducting the multigroup analysis (Hahn et al., 2002;
Sarstedt et al., 2011). The technique is also available in the smartPLS 2.0 M3 software.
The paper was published in the GlobalFood Discussion Paper Series and is currently under review for journal submission.
Chapter four presents a paper titled: ‘HomeVeg Tanzania: Managing a New Strategy amidst GLIMPSE Challenges’ The paper is written using case study research approach. Data was collected primarily by conducting unstructured interviews with the owner and employees of the agribusiness firm under analysis. The production facility of HomeVeg Ltd. was visited between June and July 2013. Basically, the case discusses a journey towards planning and implementing a firm strategy concerning product market entry. Real examples on challenges relating to Government, losses and wastage, infrastructure, markets, politics and policies, science and innovation, and environment (GLIMPSE) were given. The case was published in 2014 in the special issue of the International Food and Agribusiness Management Review (IFAMR).
A summary and some concluding remarks follow in the last section of this dissertation. Furthermore, some managerial implications are derived from the empirical results. Limitations of the research approach applied in this thesis and some ideas for future research directions close the dissertation.
6 See Figure 3-1 Chapter three.
10
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12 Appendix 1-1: Descriptive and Correlation Statistics
STM practices correlation (sig. 2-tailed)
Variables x̅ (s)
Environm ental analysis
Strategy planning
Strategy implementa
tion
Strategy control
Total STM Managers education (years) 11.05 0.233*** 0.272*** 0.274*** 0.213*** 0.283***
(3.51) (0.000) (0.000) (0.000) (0.001) (0.000)
Age of owner-manager 43 0.029 0.049 0.004 0.073 0.050
(10.7) (0.670) (0.462 (0.957) (0.280) (0.460)
Manager’s years of experience in the firm (years.)
6.86 0.376*** 0.373*** 0.413*** 0.416*** 0.438***
(4.91) (0.000) (0.000) (0.000) (0.000) (0.000) Proficiency in language of
instruction /foreign language (1 = low, 5 = high)
2.93 0.380*** 0.391*** 0.358*** 0.341*** 0.418***
(1.32) (0.000) (0.000) (0.000) (0.000) (0.000) Manager's level of expertise (9 =
low, 45 = high)
30.69 0.584*** 0.513*** 0.573*** 0.563*** 0.612***
(7.61) (0.000) (0.000) (0.000) (0.000) (0.000) Age of firm (years) 7.54 0.401*** 0.399*** 0.509*** 0.499*** 0.481***
(5.03) (0.000) (0.000) (0.000) (0.000) (0.000)
Number of full time employees 5 0.374*** 0.374*** 0.359*** 0.325*** 0.405***
(3.41) (0.000) (0.000) (0.000) (0.000) (0.000)
Capital investments (000,000 Tz shillings)
26.94 0.559*** 0.505*** 0.518*** 0.528*** 0.545***
(51.81) (0.000) (0.000) (0.000) (0.000) (0.000) Formalization status (4 = low,
20=high)
13.14 0.525*** 0.502*** 0.562*** 0.522*** 0.571***
(3.60) (0.000) (0.000) (0.000) (0.000) (0.000) Total number of product varieties 6.61 -0.076 -0.161** -0.079 -0.069 -0.084
(1.92) (0.251) (0.015) (0.233) (0.301) (0.205)
Access to production inputs (average score; 1 = low, 5=high)
4.15 0.317*** 0.294*** 0.324*** 0.298*** 0.323***
(0.75) (0.000) (0.000) (0.000) (0.000) (0.000) Access to information on raw
materials (1 = low, 5 = high)
4.34 0.225*** 0.184*** 0.138** 0.132** 0.192***
(0.94) (0.001) (0.006) (0.038) (0.049) (0.004) Self-financed firms (dummy) 0.27 -0.300*** -0.303*** -0.266*** -0.277*** -0.310***
(0.45) (0.000) (0.000) (0.000) (0.000) (0.000)
Input availability (average score) 4.12 0.213*** 0.191*** 0.224*** 0.193*** 0.220***
(0.81) 0.001 0.004 0.001 0.004 0.001
Infrastructure_(availability of power supply) (1 = low, 5=high)
4.40 0.123* 0.028 0.002 0.032 0.072
(0.73) (0.064) (0.675) (0.979) (0.634) (0.278) Infrastructure - availability of phone
services (1 = low, 5=high)
4.36 0.095 0.018 0.016 -0.039 0.067
(0.80) (0.153) (0.786) (0.806) (0.566) (0.316) Infrastructure - continuous and
uninterrupted electricity supply (1 = low, 5=high)
3.11 0.338*** 0.263*** 0.278*** 0.252*** 0.328***
(1.25) (0.000) (0.000) (0.000) (0.000) (0.000) Continues on the next page…..
13
STM practices correlation (sig. 2-tailed)
Variables x̅ (s)
Environm ental analysis
Strategy planning
Strategy implementa
tion
Strategy control
Total STM Infrastructure - continuous and
uninterrupted water supply (1 = low, 5=high)
3.21 0.242*** 0.204*** 0.186*** 0.194*** 0.238***
(1.25) (0.000) (0.002) (0.005) (0.003) (0.000)
Distance from production facility to main road (km)
4.81 0.000 0.058 0.045 0.100 0.049
(10.9) (0.996) (0.417) (0.527) (0.166) (0.494) Access to the main road - travel
time from production facility to main road (Mins)
34.39 0.045 0.095 0.087 0.115 0.096
(130) (0.532) (0.186) (0.225) (0.109) (0.179)
Distance from production facility to the nearest major market (km)
4.03 0.167** 0.140** 0.163** 0.118* 0.186***
(10.6) (0.017) (0.044) (0.019) (0.093) (0.007) Electricity availability (number of
interruptions per month)
4.40 -0.067 -0.063 -0.065 -0.002 -0.090
(5.44) (0.323) (0.354) (0.336) (0.978) (0.185) Bureaucracy- number of incidences
of changes in business regulations per year
1.65 (1.95)
0.244*** 0.159** 0.262*** 0.282*** 0.254***
(0.001) (0.038) (0.001) (0.000) (0.001)
Convenience of the business license procedure (1=poor, 5=excellent)
3.43 0.199*** 0.196*** 0.235*** 0.191*** 0.228***
(0.99) (0.003) (0.003) (0.000) (0.004) (0.000) Bureaucracy - average number of
days from initial application to approval
10.76 -0.098 -0.073 -0.074 -0.063 -0.109
(11.4) (0.175) (0.309) (0.301) (0.379) (0.130)
Increase in sales (average 3 year trend; 1=decrease , 5=increase)
3.61 0.531*** 0.523*** 0.532*** 0.535*** 0.559***
(0.84) (0.000) (0.000) (0.000) (0.000) (0.000) Increase in expenses (average 3
year trend; 1=decrease , 5=increase)
3.78 0.123* 0.095 0.172*** 0.144** 0.131**
(0.66) (0.063) (0.152) (0.009) (0.030) (0.048) Increase in number of workers
(average 3 year trend; 1=decrease , 5=increase)
3.13 -0.086 -0.066 -0.035 -0.093 -0.079
(0.55) (0.197) (0.319) (0.596) (0.166) (0.236) Notes:
Spearman rho correlation, (r) Sig. 2-tailed test, significance at *** p< 0.01; **p < 0.05 and *p <
0.1.
Strength of correlation between variables: small (r= 0.10) medium (r= 0.30 to 0.49) and large (r=0.50 to 1.00).
x̅ (s) – sample mean (standard deviation)
14 Appendix 1-2: Study Area
15
2 The Impact of External and Internal Factors on Strategic Management Practices of Agribusiness Firms in Tanzania
Theresia Dominic and Ludwig Theuvsen Abstract
All firms need to work out strategic plans to exploit the existing market, but they differ in their capacity to implement and manage strategies. Considering the industrial organization and resource-based views in the strategic management literature, we understand that firm attributes, resources and external environmental factors are critical links to strategic practices. With regard to African agribusiness firms, there is scant research on how these factors determine the successful application of strategic management practices. Therefore, this study uses empirical data from 229 agribusiness firms in Tanzania to obtain insights into the determinants of their choice of strategic management practices. The results show significantly that better strategic actions reside in the capabilities of firm managers, whereas many external factors, such as access to public infrastructure, did not turn out to have a significant influence. The findings have interesting implications for the management of agribusiness firms in African countries and other developing and emerging economies.
This paper has been published in this similar version as a discussion paper within the Global Food Discussion Paper Series.
16
2.1 Introduction
Competitiveness in global markets has required firms to think, plan and make decisions strategically. In this case a series of practices such as environmental analysis, strategy formulation, implementation, evaluation and control of strategic plans within firms are applied through strategic management (STM) approaches (Wheelen & Hunger, 2006). Strategic management consists of actions that provide a framework for the long- term development of a company and result in the achievement of a firm’s objectives (Hitt, Ireland, & Hoskisson, 2009). Various studies have revealed that small and medium-sized firms differ from large companies with regard to their strategic management practices (Welsh & White, 1981) and often lack strategic awareness (Gibb
& Scott, 1985). Several studies of small firms have attempted to link STM and firm performance (R. Andrews et al., 2006; Beaver, 2002; Bracker & Pearson, 1986; Chen, 2005; Georgellis et al., 2000; Stacey, 2011). Schwenk and Shrader (1993) examined 14 research studies and showed a positive, significant link between the planning activities of small firms and their performance. However, success depends on who carries out the planning in a given firm and a proper assessment of the firm’s resources and environmental conditions (Stacey, 2011). Since relatively few agribusiness studies discuss firms’ strategic management practices, this study seeks to fill that gap by examining STM application in food processing firms (Trienekens, 2011). Greater attention is needed to ‘strategic management’ explanations of agribusiness firms (Mugera, 2012; Ng and Siebert, 2009) especially in the context of developing and emerging economies since companies from these economies have only rarely been addressed by strategic management research.
STM practices are sometimes considered less relevant for small and medium-sized firms, especially in the agribusiness sector, because it is thought that a systematic STM is necessary only for large corporations (Chen, 2005; Fard et al. 2011; Hitt et al., 2009). In this regard, small firms end up having poor plans on how to get their products to final consumers in food markets (Admassie & Matambalya, 2002; Kinda & Loening, 2010).
But in many countries food markets are characterized by a high intensity of competition and increasing internationalization (Rama, 2005; Theuvsen et al., 2010). Theoretically, this means that the firms facing the hardship in the market environment will require more strategic practices than those facing simple environments (Miller & Friesen, 1983)—
17 regardless of their size. Furthermore, firms in competitive environments should be proactive, foresee changes in their environment and refine their strategies according to market requirements (Sull, 2009).
In Tanzania and other developing and emerging economies, food processing firms have great potential for growth, and their strategic management orientation is progressing. However, despite some progress, strategic management is still in its infancy in many companies and our current understanding of their operating strategies has remained limited. Several explanations are offered for firms’ reluctance to implement strategic management practices, including lack of better trading strategies and poor managerial skills (Dinh et al., 2013). Over the years government programs such as the Tanzanian Agricultural Sector Development Program 2006–2013, have been formulated to support the building of better functioning agro processing firms (Dinh et al., 2013).
However, firms̕ abilities to develop their own strategies differ and are not well understood. Some firms are better at implementing management practices than others.
Therefore, our research question is this: What is the influence of internal and external factors on the successful implementation of a firm’s strategic management practices? The factors investigated here are firm characteristics, its access to resources and the external pressures on the firm from its operating environment.
The remainder of this paper is structured as follows: In Section 2 we clarify the foundation behind specific relationships between various contingency factors and management practices through giving a theoretical background and building a conceptual framework. We also generate research assumptions based on different arguments from the empirical literature. Section 3 describes the sample, measures and analytical techniques. Then results are presented in Section 4, including primary data from interviews with agribusiness firm managers. Finally, in Section 5 we discuss the conclusions and implications of the results and give directions for future research.
2.2 Theoretical Framework and Hypotheses
Due to market competition and other external challenges, firms make efforts to carry out systematic planning and decision making. Strategic management is a management practice that can contribute to these efforts. It contains a full set of actions required for a firm to analyze its external and internal environments; formulate its
